TTWO » Topics » Liquidity and Capital Resources

This excerpt taken from the TTWO 10-Q filed Jun 5, 2009.

Liquidity and Capital Resources

Our primary cash requirements have been to fund (i) the development, manufacturing and marketing of our published products (ii) working capital (iii) acquisitions and (iv) capital expenditures. We expect to rely on funds provided by our operating activities, our Wells Fargo credit agreement and our recently issued convertible senior notes to satisfy our working capital needs.

In July 2007, we entered into a credit agreement with Wells Fargo (the "Credit Agreement"). The Credit Agreement provides for borrowings of up to $140.0 million and is secured by substantially all of our assets and the equity of our subsidiaries. The Credit Agreement expires on July 3, 2012. Revolving loans under the Credit Agreement bear interest at our election of (a) 2.00% to 2.50% above a certain base rate with a minimum 6.00% base rate (8.00% at April 30, 2009 and October 31, 2008), or (b) 3.25% to 3.75% above the LIBOR Rate with a minimum 4.00% LIBOR Rate (7.25% at April 30, 2009 and October 31, 2008). We are also required to pay an annual fee on the unused available balance, ranging from 0.25% to 0.75% based on amounts borrowed.

Availability under the Credit Agreement is restricted by our domestic and United Kingdom based accounts receivable and inventory balances. The Credit Agreement also allows for the issuance of letters of credit in an aggregate amount of up to $25.0 million.

As of April 30, 2009 there were $70.0 million of borrowings and $27.0 million was available for additional borrowings. We had $11.6 million of letters of credit outstanding at April 30, 2009 and were in compliance with all covenants and requirements in the Credit Agreement. On May 28, 2009, we paid down all of the outstanding borrowings on our Credit Agreement.

In May 2009, we issued $138.0 million of 4.375% convertible senior notes due 2014 ("Convertible Notes"). The Convertible Notes will pay interest semi-annually at a rate of 4.375% per annum and will mature on June 1, 2014. The Convertible Notes will be convertible under certain circumstances and during certain periods at an initial conversion rate of 93.6768 shares of our common stock per $1,000 principal amount of notes (representing an initial conversion price of approximately $10.675 per share of common stock or a conversion premium of 25%, for a total of approximately 12,927,000 underlying conversion shares), subject to adjustment in certain circumstances. The initial conversion price represents a conversion premium of 25%. Prior to December 1, 2013, the Convertible Notes will be convertible only upon specified events and, thereafter, at any time. Upon conversion, the Convertible Notes may be settled, at our election, in cash, shares of our common stock, or a combination of cash

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and shares of the Company's common stock. We may redeem some or all of the Convertible Notes for cash under certain circumstances on or after June 5, 2012.

In connection with the offering of the notes, we entered into convertible note hedge transactions, which are expected to reduce the potential dilution to our common stock upon conversion of the notes. The transactions consist of options to purchase approximately 12,927,000 shares of common stock at $10.675 per share, expiring on June 1, 2014, for a total cost of $43.6 million and the sale of warrants to purchase approximately 12,927,000 shares of common stock at $14.945 per share expiring August 30, 2014, for total proceeds of $26.3 million. The cost of the options and the issuance proceeds from the warrants will be applied to additional paid-in capital.

We are subject to credit risks, particularly if any of our receivables represent a limited number of customers or are concentrated in foreign markets. If we are unable to collect our accounts receivable as they become due, it could adversely affect our liquidity and working capital position.

Generally, we have been able to collect our accounts receivable in the ordinary course of business. We do not hold any collateral to secure payment from customers. Effective March 1, 2008, we have purchased trade credit insurance on the majority of our customers to mitigate accounts receivable risk.

A majority of our trade receivables are derived from sales to major retailers and distributors. Our five largest customers accounted for 47.4% and 43.9% of net revenue for the six months ended April 30, 2009 and 2008, respectively. As of April 30, 2009 and October 31, 2008, amounts due from our five largest customers comprised approximately 67.3% and 39.0% of our gross accounts receivable balance, respectively, with our significant customers (those that individually comprised more than 10% of our gross accounts receivable balance) accounting for 62.3% and 11.8% of such balance at April 30, 2009 and October 31, 2008, respectively. We believe that the receivable balances from these largest customers do not represent a significant credit risk based on past collection experience, although we actively monitor each customer's credit worthiness and economic conditions that may impact our customers' business and access to capital. We are monitoring the current global economic conditions, including credit markets and other factors as it relates to our customers in order to manage the risk of uncollectible accounts receivable.

We have entered into various agreements in the ordinary course of business that require substantial cash commitments over the next several years. There were no material agreements requiring known cash commitments entered into during the six months ended April 30, 2009 that were not previously reported in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2008.

We believe our current cash and cash equivalents and projected cash flow from operations, along with availability under our Credit Agreement and net proceeds resulting from the issuance of Convertible Notes, will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures and commitments through at least the next 12 months.

Our cash and cash equivalents decreased by $100.7 million for the six months ended April 30, 2009 as follows:

 
  Six months ended April 30,
 
 
     
(thousands of dollars)
  2009
  2008
 
       
 

Cash used for operating activities

  $ (92,744 ) $ (13,724 )
 

Cash used for investing activities

    (6,067 )   (9,035 )
 

Cash provided by financing activities

    4     17,532  
 

Effects of exchange rates on cash and cash equivalents

    (1,854 )   388  
   

Net decrease in cash and cash equivalents

  $ (100,661 ) $ (4,839 )
   

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At April 30, 2009 we had $179.6 million of cash and cash equivalents, compared to $280.3 million at October 31, 2008. Our decrease in cash and cash equivalents from October 31, 2008 was primarily a result of cash used for operating activities. In the six months ended April 30, 2009 our net loss was partially offset by non-cash expenses and a decrease in accounts receivable, reflecting seasonality in our business as we collected on sales from the holiday season. Offsetting the collection of our accounts receivable were decreases in accounts payable and accruals, also reflecting seasonality, the recognition of deferred revenues related to the release of Grand Theft Auto IV: The Lost and Damned downloadable episode and payments for software development costs and licenses. Prepaid expenses and other assets decreased in the 2008 period, mainly as a result of a $19.5 million income tax refund received.

Cash used for investing activities in 2009 consisted of purchases of computer equipment and software which did not significantly increase for the six months ended April 30, 2009 compared to the prior period.

Cash provided by financing activities in 2009 decreased compared to the same period in 2008 reflecting the decrease in the exercise of stock options in 2009 as compared to the same period in 2008 as a result of the lower stock prices in 2009.

Cash and cash equivalents were negatively impacted by $1.9 million in 2009 as a result of foreign currency exchange movements primarily due to the impact of the weakening European currencies against the United States dollar.

This excerpt taken from the TTWO 10-Q filed Mar 11, 2009.

Liquidity and Capital Resources

Our primary cash requirements have been to fund (i) the development, manufacturing and marketing of our published products (ii) working capital (iii) acquisitions and (iv) capital expenditures. Historically, we have relied on funds provided by operating activities and short and long-term borrowings to satisfy our working capital needs.

In July 2007, we entered into a credit agreement with Wells Fargo (the "Credit Agreement"). The Credit Agreement provides for borrowings of up to $140.0 million and is secured by substantially all of our assets and the equity of our subsidiaries. The Credit Agreement expires on July 3, 2012. Revolving loans under the Credit Agreement bear interest at our election of (a) 2.00% to 2.50% above a certain base rate (8.00% at January 31, 2009 and October 31, 2008), or (b) 3.25% to 3.75% above the LIBOR Rate with a minimum 4.00% LIBOR Rate (7.25% at January 31, 2009 and October 31, 2008). We are also required to pay an annual fee on the unused available balance, ranging from 0.25% to 0.75% based on amounts borrowed.

Availability under the Credit Agreement is restricted by our domestic and United Kingdom based accounts receivable and inventory balances. The Credit Agreement also allows for the issuance of letters of credit in an aggregate amount of up to $25.0 million.

As of January 31, 2009 there were $70.0 million of borrowings and $58.4 million was available for additional borrowings. We had $11.6 million of letters of credit outstanding at January 31, 2009 and were in compliance with all covenants and requirements in the Credit Agreement.

We are subject to credit risks, particularly if any of our receivables represent a limited number of customers or are concentrated in foreign markets. If we are unable to collect our accounts receivable as they become due, it could adversely affect our liquidity and working capital position.

Generally, we have been able to collect our accounts receivable in the ordinary course of business. We do not hold any collateral to secure payment from customers. Effective March 1, 2008, we have purchased trade credit insurance on the majority of our customers to mitigate accounts receivable risk.

A majority of our trade receivables are derived from sales to major retailers and distributors. Our five largest customers accounted for 49.5% and 45.7% of net revenue for the three months ended January 31, 2009 and 2008, respectively. As of January 31, 2009 and October 31, 2008, amounts due from our five largest customers comprised approximately 63.2% and 39.0% of our gross accounts receivable balance, respectively, with our significant customers (those that individually comprised more than 10% of our gross accounts receivable balance) accounting for 46.7% and 11.8% of such balance at January 31, 2009 and October 31, 2008, respectively. We believe that the receivable balances from these largest customers do not represent a significant credit risk based on past collection experience, although we actively monitor each customer's credit worthiness and economic conditions that may impact our customers' business and access to capital. We are monitoring the current global economic conditions, including credit markets and other factors as it relates to our customers in order to manage the risk of uncollectible accounts receivable.

We have entered into various agreements in the ordinary course of business that require substantial cash commitments over the next several years. There were no material agreements requiring known

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cash commitments entered into during the first quarter of 2009 that were not previously reported in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2008.

We believe our current cash and cash equivalents and projected cash flow from operations, along with availability under our Credit Agreement, will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures and commitments through at least the next 12 months.

Our cash and cash equivalents decreased by $62.4 million for the quarter ended January 31, 2009 as follows:

 
  Three months ended January 31,  
(thousands of dollars)
  2009
  2008
 
       
 

Cash used for operating activities

  $ (56,809 ) $ (39,365 )
 

Cash used for investing activities

    (2,198 )   (1,521 )
 

Cash provided by financing activities

    4     17,958  
 

Effects of exchange rates on cash and cash equivalents

    (3,438 )   (441 )
             

Net decrease in cash and cash equivalents

  $ (62,441 ) $ (23,369 )
       

At January 31, 2009 we had $217.8 million of cash and cash equivalents, compared to $280.3 million at October 31, 2008. Our decrease in cash and cash equivalents from October 31, 2008 was primarily a result of cash used for operating activities. In the first quarters of 2009 and 2008, our net losses were partially offset by non-cash expenses and a decrease in accounts receivable, reflecting seasonality in our business as we collected on sales from the holiday season. Offsetting the collection of our accounts receivable were decreases in accounts payable and accruals, also reflecting seasonality. In addition, we continued to increase spending on capitalized expenditures for software development costs and licenses. Prepaid expenses and other assets decreased in the 2008 period, mainly as a result of a $19.5 million income tax refund received.

Cash used for investing activities consisted of purchases of computer equipment and software which did not significantly increase for the first quarter 2009 compared to the prior period.

Cash provided by financing activities reflected an increase in net borrowings in the first quarter 2008 compared to the same period in 2009.

Cash and cash equivalents were negatively impacted by $3.4 million in 2009 as a result of foreign currency exchange movements primarily due to the impact of the weakening European currencies against the United States dollar.

This excerpt taken from the TTWO 10-Q filed Sep 10, 2007.

Liquidity and Capital Resources

Our primary cash requirements have been to fund (i) the development, manufacturing and marketing of our published products (ii) working capital (iii) acquisitions and (iv) capital expenditures. In addition, we expect to incur further cash obligations as part of our business reorganization initiatives. Historically, we relied on funds provided by operating activities and short and long-term borrowings to satisfy our working capital needs.

On July 3, 2007, we entered into a credit agreement with Wells Fargo Foothill, Inc. (the “Credit Agreement”), which provides for a revolving credit facility (inclusive of a swingline facility) in an amount equal to the lesser of (a) the aggregate principal amount of $100.0 million and (b) the borrowing base (the “Credit Facility”). The agreement allows borrowings up to the sum of 85% of eligible accounts receivable (net of certain reserves), plus 65% of eligible inventory (net of certain reserves), plus $25.0 million. The

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Credit Facility is secured by substantially all of our U.S. based assets and the equity of our domestically incorporated subsidiaries. Revolving loans under the Credit Agreement will bear interest at our election of (a) 0.50% to 1.00% above a certain base rate (9.25% at July 31, 2007), or (b) 1.75% to 2.25% above the LIBOR Rate (7.61% at July 31, 2007), with the margin rate subject to the achievement of certain average liquidity levels. We are also required to pay a fee of 0.375% of the unused loan balance. The Credit Facility matures on July 3, 2012. As of July 31, 2007, we borrowed $11 million and had $89 million available for borrowings under the line of credit.

The Credit Agreement contains customary restrictions and remedies for events of default. Beginning in November 2007, the Credit Agreement also contains a requirement that we maintain an interest coverage ratio of more than one to one for the trailing twelve month period, if the liquidity of our domestic operations (including available borrowings under the Credit Facility) falls below $30.0 million, based on a 30-day average. As of July 31, 2007, the Company was in compliance with all covenants and requirements outlined in the Credit Agreement.

As of July 31, 2007 and October 31, 2006, amounts due from our five largest customers comprised approximately 58.3% and 45.4%, respectively, of our gross accounts receivable balance with our significant customers (those that individually comprise more than 10% of our gross accounts receivable balance) accounting for 48.5% and 36.4% of such balance at July 31, 2007 and October 31, 2006, respectively. We believe that the receivable balances from these largest customers do not represent a significant credit risk based on past collection experience.

Generally, we collect our accounts receivable in the ordinary course of business. We do not hold any collateral to secure payment from customers and our receivables are generally not covered by insurance. However, from time to time we purchase insurance from financial institutions on our accounts receivable, with certain limits, to help protect us from loss in the event of a customer’s bankruptcy or insolvency.

We have approximately $65 million of license and marketing commitments due within one year and approximately $305 million of such commitments over the next six years. We entered into significant long-term agreements, primarily with major sports leagues and players’ associations, for intellectual properties including trademarks, player likenesses and player stats for use in the publishing, marketing and distribution of certain of our software titles. We acquired non-exclusive licenses for National Basketball Association (“NBA”) and National Hockey League (“NHL”) themed titles, and a third-party exclusive license for Major League Baseball (“MLB”) themed titles. For certain of these agreements, in addition to the license and marketing commitments, we are subject to certain penalties based on minimum product requirements and release schedules. We also occasionally enter into agreements to license, publish, market and distribute titles based on major motion pictures and other popular entertainment properties such as Fantastic Four: Rise of the Silver Surfer, Ghost Rider, The Da Vinci Code and Charlie and the Chocolate Factory. Generally our licensing agreements require significant cash commitments by us, including, in some cases, marketing commitments in support of these titles.

We have approximately $49 million of commitments and contingent consideration with several third-party software development studios and our internally owned (acquired) studios expiring at various times through 2009. The commitments with third-party developers require us to make advance payments to such developers, which we later have the ability to recover as pre-agreed sales thresholds are met. Our contingent considerations for internally owned (acquired) studios require us to make payments based on passage of time, release of certain titles and other pre-agreed sales thresholds. In addition, we have operating lease commitments, primarily for office space, which total nearly $89 million over the next seven years and generally range between $13 million and $17 million per year.

We believe that our current cash and cash equivalents and projected cash flow from operations, along with our availability under the Credit Agreement, will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures and commitments through at least the next twelve

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months. In addition, management believes it has the ability, if necessary, to implement further restructuring activities that would substantially reduce personnel and personnel-related costs, reduce capital expenditures, reduce research and development expenditures and/or reduce selling and marketing expenditures. Management also believes it has the ability to obtain additional financing, if necessary.

This excerpt taken from the TTWO 10-Q filed Mar 1, 2007.

Liquidity and Capital Resources

Our primary cash requirements are to fund the development and marketing of our products. We satisfy our working capital requirements primarily through cash flow from operations. At July 31, 2006, we had working capital of $284.9 million as compared to working capital of $365.9 million at October 31, 2005.

Cash and cash equivalents increased for the nine months ended July 31, 2006 as follows:

 

 

Nine months ended
July 31,

 

(thousands of dollars)

 

2006

 

2005

 

Cash provided by operating activities

 

$

84,362

 

$

111,939

 

Cash used in investing activities

 

(18,791

)

(81,213

)

Cash provided by financing activities

 

2,950

 

14,912

 

Effects of exchange rates on cash and cash equivalents

 

3,414

 

(5,378

)

Net increase (decrease) in cash and cash equivalents

 

$

71,935

 

$

40,260

 

 

Operating Activities.   Net cash provided by operating activities for the nine months ended July 31, 2006 was $84.4 million compared to $111.9 million for the nine months ended July 31, 2005. The decrease is primarily due to the net loss in the current period, adjusted for non-cash items including amortization and write-offs of software development costs. Net cash provided by operating activities in the current period also reflects an increase in accrued expenses and approximately $51.0 million of cash received related to various agreements to provide online content, in-game advertising and licensing of our intellectual property.

Investing Activities.   Net cash used in investing activities for the nine months ended July 31, 2006 was $18.8 million compared to $81.2 million for the nine months ended July 31, 2005. Net cash used in the current period primarily reflects the purchase of fixed assets partially offset by net cash acquired in the acquisition of Firaxis. The prior year period primarily reflects the acquisitions of Visual Concepts and Kush, Gaia and the intellectual property of Civilization.

Financing Activities.   Net cash provided by financing activities for the nine months ended July 31, 2006 was $3.0 million as compared to $14.9 million for the nine months ended July 31, 2005. The decrease was primarily attributable to lower proceeds from the exercise of stock options. The prior period also reflects the repurchase of our common stock at an aggregate cost of $15.0 million.

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This excerpt taken from the TTWO 10-Q filed Jun 9, 2006.

Liquidity and Capital Resources

Our primary cash requirements are to fund the development and marketing of our products. We satisfy our working capital requirements primarily through cash flow from operations. At April 30, 2006, we had working capital of $314,760 as compared to working capital of $378,967 at October 31, 2005.

Cash and cash equivalents increased by $33,873 for the six months ended April 30, 2006 as follows:

 

 

 

Six months ended
April 30,

 

 

 


 

 

 

2006

 

2005

 

 

 


 


 

Cash provided by operating activities

 

$

42,643

 

$

98,619

 

Cash used in investing activities

 

 

(13,200

)

 

(66,246

)

Cash provided by financing activities

 

 

2,068

 

 

24,393

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

2,362

 

 

(1,620

)

 

 



 



 

Net increase in cash and cash equivalents

 

$

33,873

 

$

55,146

 

 

 



 



 

This excerpt taken from the TTWO 10-K filed Jan 31, 2006.

Liquidity and Capital Resources

Our primary cash requirements are to fund the development, manufacturing and marketing of our published products and, to a lesser extent, the purchase of inventory for our distribution business. We satisfy our working capital requirements primarily through cash flow from operations. At October 31, 2005, we had working capital of $378,967 as compared to working capital of $407,914 at October 31, 2004. Our cash and cash equivalents decreased by $47,900 during fiscal 2005 as follows:

    Years ended October 31,  
   
 
    2005   2004   2003  
   

 

 

 
Cash provided by operating activities   $ 39,980   $ 20,458   $ 80,628  
Cash used in investing activities     (91,034 )   (64,422 )   (45,881 )
Cash provided by financing activities     6,223     16,315     44,562  
Effect of foreign exchange rates on cash and cash equivalents     (3,069 )   (733 )   (4,201 )
   

 

 

 
Net (decrease) increase in cash and cash equivalents   $ (47,900 ) $ (28,382 ) $ 75,108  
   

 

 

 

Operating Activities. Cash provided by operating activities for fiscal 2005 was $39,980 compared to $20,458 for fiscal 2004. The increase is primarily due to the timing and collection of accounts receivable in fiscal 2005 and is reflected in the decrease in net accounts receivable of approximately $87,641 from October 31, 2004. The increase was primarily offset by lower net income, an increase in product development costs and the payment of a $7,500 fine in connection with an SEC settlement.

Investing Activities. Net cash used in investing activities for fiscal 2005 was $91,034 compared to $64,422 for fiscal 2004. Net cash used in fiscal 2005 primarily reflects the acquisition of Visual Concepts and Kush, Gaia Capital Group, Irrational Studios LLC and certain intellectual property rights associated with Civilization and the prior year reflects the acquisitions of TDK, Indie, Mobius and Venom. During fiscal 2005, we also incurred capital expenditures associated with leasehold improvements at our new warehouse facilities in Cincinnati, Ohio, new offices for our 2K publishing labels and expenditures related to the continued improvement of our software systems.

Financing Activities. Net cash provided by financing activities for fiscal 2005 was $6,223 as compared to $16,315 for fiscal 2004. The decrease was primarily attributable to the repurchase of 925,341 shares of our common stock in 2005 at a cost of $24,929.

Significant Balance Sheet Changes: The decrease of $89,952 in gross accounts receivable, before allowances, from October 31, 2004 to October 31, 2005, is primarily due to the timing of the release of Grand Theft Auto: San Andreas in October 2004 and subsequent receivable collections.

Our allowances, which include doubtful accounts, returns, price concessions, rebates and other sales allowances, decreased slightly to $69,904 at October 31, 2005 from $72,215 at October 31, 2004 and increased as a percentage of receivables to 26.1% at October 31, 2005 from 20.2% at October 31, 2004. The increase in the allowance as a percentage of receivables is partly due to additional reserves at October 31, 2005 of approximately $7,714 recorded in anticipation of remaining product returns as a result of the re-rating of Grand Theft Auto: San Andreas by the ESRB in July 2005. At October 31, 2005, our allowances, excluding the additional reserves related to the re-rating of Grand Theft Auto: San Andreas, were approximately 23.3% of gross accounts receivables. In addition, allowances as a percentage of receivables were lower at October 31, 2004 as a result of net revenues from a major product release, Grand Theft Auto: San Andreas for the PlayStation 2 in October 2004 on which lower allowances were required.

As of October 31, 2005 and 2004, the receivable balances from our five largest customers were approximately 56.6% and 45.1% of our net receivable balance, respectively, with two customers accounting for 21.7% and 10.8% of such balance at October 31, 2005 as compared to two customers accounting for 12.8% and 11.2% of such balance at October 31, 2004.

Generally, we have been able to collect our receivables in the ordinary course of business. We do not hold any collateral to secure payment from customers and our receivables are generally not covered by

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insurance. However, from time to time we purchase insurance from financial institutions on our receivables, with certain limits, to help protect us from loss in the event of a customer’s bankruptcy or insolvency.

We are subject to credit risks, particularly in the event that any of the receivables represent a limited number of retailers or are concentrated in foreign markets. If we are unable to collect our accounts receivable as they become due, it could adversely affect our liquidity and working capital position and we would be required to increase our provision for doubtful accounts.

Inventories of $136,227 at October 31, 2005 decreased $18,118 from $154,345 at October 31, 2004, reflecting lower levels of publishing products. Accounts payable of $133,353 at October 31, 2005 decreased $30,608 from $163,961 at October 31, 2004 primarily due to the decrease in inventory levels.

Accrued expenses decreased primarily as a result of a decrease in royalties payable under a royalty program based on product sales for certain of our internal development personnel due to the timing of a significant product release, Grand Theft Auto: San Andreas, in October 2004. The decrease was also due to the payment of a civil penalty in connection with an SEC settlement in fiscal 2005 of $7,500, which was accrued at October 31, 2004, offset by an increase in compensation and benefits which is primarily due to timing.

Loan Facilities: On August 24, 2005, we entered into a new credit agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”), and terminated our credit agreement with Bank of America, N.A, which would have expired on August 28, 2005. The JPMorgan credit agreement provides for borrowings of up to $50,000 through the expiration of the agreement on August 23, 2006. Advances under the credit agreement bear interest at a rate of 0.25% to 0.75% over the bank’s prime rate, or at the Eurodollar rate plus 1.25% to 1.75% depending on our consolidated leverage ratio. We are required to pay a commitment fee to the bank equal to 0.25% of the unused loan balance and borrowings under the agreement are collateralized by certain of our assets. The credit agreement also contains financial and other covenants (including a consolidated asset coverage ratio) and prohibits us from paying cash dividends, merging or consolidating with another corporation, selling or acquiring assets (other than in the ordinary course of business), creating liens and incurring additional indebtedness. Available borrowings under the agreement are reduced by the amount of any outstanding stand-by letters of credit. At October 31, 2005, we had no borrowings or outstanding stand-by letters of credit under the credit agreement, and we were in compliance with all financial and other covenants.

In May 2005, our United Kingdom subsidiary renewed its credit facility agreement with Lloyds TSB Bank plc (“Lloyds”) under which Lloyds agreed to make available borrowings of up to approximately $23,000. Advances under the credit facility bear interest at the rate of 1.25% per annum over the bank’s base rate, and are guaranteed by us. Available borrowings under the agreement are reduced by the amount of outstanding guarantees. The facility expires on March 31, 2006. We had no outstanding guarantees and no borrowings under this facility as of October 31, 2005.

Capital Expenditures: We expect to spend an additional $5,000 in connection with the continued improvement of our network infrastructure and software systems for our domestic and international operations. We also expect to make additional capital expenditures of approximately $1,000 for leasehold improvements and equipment in our new warehouse facilities in Cincinnati, Ohio, $1,000 for leasehold improvements and equipment in our warehouse facilities in Toronto, Canada and a further $2,500 for leasehold improvements and equipment for several of our studios. As of the date of this report, we have no other material commitments for capital expenditures.

Common Stock: In June and August 2005, we repurchased a total of 925,341 shares of common stock at an aggregate cost of $24,929. These shares were retired in August 2005.

In July 2005, we modified a stock compensation arrangement and accepted for return 412,500 shares of the Company’s common stock, held by three employees with a fair market value at the original issuance date of approximately $9,350, for cash bonuses payable in the future. At the date of modification, 366,667 shares were fully vested and $8,311 of compensation expense had been previously recognized. The remaining unvested shares were forfeited and the additional compensation

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expense of future cash bonuses of $1,039 is being recognized ratably as expense through February 2006. In October 2005, these shares were retired.

Legal and Accounting Expenses: We have incurred and may continue to incur significant legal, accounting and other professional fees and expenses in connection with pending regulatory and litigation matters.

Based on our currently proposed operating plans and assumptions, we believe that projected cash flow from operations and available cash resources, including amounts available under our line of credit, will be sufficient to satisfy our cash requirements for the foreseeable future. If our projected cash flow and available cash is insufficient to fund our operations or if our plans and assumptions change or prove to be inaccurate, we may be required to seek additional financing or curtail our diversification activities.

This excerpt taken from the TTWO 10-Q filed Sep 8, 2005.

Liquidity and Capital Resources

Our primary cash requirements are to fund the development and marketing of our products. We satisfy our working capital requirements primarily through cash flow from operations. At July 31, 2005, we had working capital of $339,326 as compared to working capital of $398,094 at October 31, 2004.

Cash and cash equivalents increased for the nine months ended July 31, 2005 as follows:

   
  Nine months ended July 31,  





 
  2005 2004  
 



 
Cash provided by operating activities $ 110,974 $ 41,347  
Cash used in investing activities (80,248 ) (38,651 )
Cash provided by financing activities  14,912   11,435  
Effect of foreign exchange rates on cash and cash equivalents  (5,378 ) 343  
 

 

 
Net increase in cash and cash equivalents $ 40,260   $ 14,474  
 

 

 

Operating Activities. Cash provided by operating activities for the nine months ended July 31, 2005 was $110,974 compared to $41,347 for the nine months ended July 31, 2004. The increase principally reflects higher net income, adjusted for non-cash items including amortization of software development costs and licenses and the provision for doubtful accounts and sales allowances. The increase is also due to the collection of accounts receivable offset by expenditures related to the development of our titles, subsequent

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TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(Dollars in thousands, except per share amounts)


payment of accounts payable related to inventory purchased prior to October 31, 2004 and the payment of royalties earned under our internal royalty program.

Investing Activities. Net cash used in investing activities for the nine months ended July 31, 2005 was $80,248 compared to $38,651 for the nine months ended July 31, 2004. Net cash used in the current period primarily reflects the acquisition of Civilization, Gaia Capital Group, Visual Concepts and Kush, and the prior year period reflects the acquisition of TDK. During the current period, we also incurred capital expenditures associated with leasehold improvements at our new warehouse facilities in Cincinnati, Ohio and new offices for our 2K publishing label and expenditures related to the continued improvement of our software systems.

Financing Activities. Net cash provided by financing activities for the nine months ended July 31, 2005 was $14,912 as compared to $11,435 for the nine months ended July 31, 2004. The increase was primarily attributable to higher proceeds from the exercise of stock options offset by the repurchase of 520,341 shares of our common stock in June 2005 at an aggregate cost of $14,998.

This excerpt taken from the TTWO 10-Q filed Jun 9, 2005.

Liquidity and Capital Resources

Our primary cash requirements are to fund the development and marketing of our products. We satisfy our working capital requirements primarily through cash flow from operations. At April 30, 2005, we had working capital of $412,178 as compared to working capital of $398,094 at October 31, 2004.

Cash and cash equivalents increased for the six months ended April 30, 2005 as follows:

      Six months ended
April 30,
 
     
 
      2005     2004  




Cash provided by operating activities   $ 97,654   $ 100,061  
Cash used in investing activities     (65,281 )   (30,193 )
Cash provided by financing activities     24,393     7,187  
Effect of foreign exchange rates on cash and cash equivalents     (1,620 )   801  




Net increase in cash and cash equivalents   $ 55,146   $ 77,856  




Operating Activities. Cash provided by operating activities for the six months ended April 30, 2005 was $97,654 compared to $100,061 for the six months ended April 30, 2004. The decrease principally reflects an increase in expenditures related to the development of titles, the subsequent payment of accounts payable related to the build-up in inventory at October 31, 2004 in connection with release of a major product and the payment of royalties earned under our internal royalty program. This was offset by higher net income, adjusted for non-cash items, and the collections of accounts receivable from significant product sales.

Investing Activities. Net cash used in investing activities for the six months ended April 30, 2005 was $65,281 compared to net cash used in investing activities of $30,193 for the six months ended April 30, 2004. Net cash used in the current period reflects an escrow payment in connection with an offer of settlement, the acquisition of Civilization, Visual Concepts and Kush and the prior period reflects the acquisition of TDK. During the current period, we also incurred capital expenditures associated with leasehold improvements at our new warehouse facilities in Cincinnati, Ohio and new offices for our 2K publishing label and expenditures related to the continued improvement of our software systems.

Financing Activities. Net cash provided by financing activities for the six months ended April 30, 2005 was $24,393 as compared to net cash provided by financing activities of $7,187 for the six months ended April 30, 2004. The increase was primarily attributable to higher proceeds from the exercise of stock options.

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